Macron Flicks on the Risk Switch with the EUR on the Bounce

The French Elections failed to follow in the footsteps of Britain’s EU Referendum and U.S Presidential Election last year, with centralist and market favourite Macron taking the first round with 23.9% of the vote after 97.3% of votes counted, Le Pen coming in second with 21.4% of the vote.

There will be plenty of relief within the Establishment that centralist parties continue to rule the roost within the EU, leaving Britain out on its own in its anti-Establishment position, though we do have the Italian election early next year to consider, the German elections later this year unlikely to deliver any surprises.

It may be too early for the markets to fully buy into the relief rally following Sunday’s result, but with Macron in a clear lead against Le Pen’s Front National, the mountain looks too high to climb for Le Pen. Those hoping for a return to the Franc and an exit from the EU will be disappointed, but with the French economy continuing to gain momentum, the outcome removes the prospect of disruption and allows Draghi and the team to focus on the Eurozone economy, without the need to fire fight.

There had been plenty of noise last week over the markets’ apparent complacency going into Sunday’s vote and today’s moves through the early session are certainly not as extreme as those seen following the EU Referendum last summer and Trump’s victory in November, with the EUR paring gains through the Asian session, having surged 1.95% to an intraday high $1.0937.

Macron may be considered green behind the ears, but following the Fillon scandal, the alternative would have been a burden too heavy for the markets to bare, reflected in appetite for the safe havens in early trading, with gold hitting an intraday low $1,265.51 and the Yen falling back to ¥110 levels against the Dollar.

Le Pen may be hoping to take Melenchon’s support into the run-off on 7^th May, but with Fillon standing behind Macron, France’s election process will most likely once again ensure that a populist party fails to make it into office.

We can expect the EUR to hold on to intraday gains through to the close, with macroeconomic data scheduled for release out of the Eurozone including Germany’s Ifo Business Climate Index figures for April, which is forecasted to show a slight uptick on March numbers, though the build-up of risk appetite will be a negative for the EUR, a funding currency, offsetting any upside from today’s stats.

With the French Election box now ticked, focus will shift to the Oval Office and Trump’s promise of tax reforms to be rolled out on Wednesday, with no material stats out of the U.S today, talk of a big tax reform and reduction plan expected to be a boost for the U.S economy and the Dollar, though looking at the Dollar Spot Index this morning, you wouldn’t think that there’s anything coming from the U.S administration anytime soon, the Dollar Spot Index falling as much as 1.14% in early trading to an intraday low of 98.835 before recovering to 99 levels.

Expect European and U.S equities to rally off the back of the French election result and expectations of tax reforms this week, with the Dow futures up 178 points at the time of the report, with the CAC opening up 2.8% on the European open.

The markets were in need of a catalyst and this week could see the Dow get its much needed second wind, but Trump will need to deliver and the markets will need to be convinced that there will be a more bipartisan house in the interest of the U.S economic growth.

At the time of the report, the EUR is up 1.08% at $1.08438, with the Dollar Spot Index down 0.76% at 99.22, while gold and the Yen sit deep in negative territory.

With Macron having flicked on the risk switch, we can expect gold and the Yen to lose more ground through the European and U.S sessions, with the Dollar likely to find its feet, though there may be too much ground to make up for the Dollar Spot Index to close out the day in positive territory.